KPMG report: Qatar banking sector remains resilient in challenging times

Qatar banking sector remains resilient

The overall outlook for the GCC’s banking sector is positive and Qatar is fairing particularly well according to KPMG’s GCC listed bank results report, which analyses the published 2016 financial statements of 56 leading listed commercial banks across Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates.

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Omar Mahmood
  • GCC banking results report analyses results of 56 of the region’s leading listed commercial banks, covering over 90 percent of listed banking assets, including all listed commercial banks in Qatar.
  • On average, net profit has declined for the first time in recent years in Qatar and across the region, predominantly due to margin compression and loan impairment, but banks remain resilient and the long-term outlook remains positive despite economic uncertainty.
  • Qatar has the lowest cost-to-income ratio across the region and the highest asset and capital growth rates.

The overall outlook for the GCC’s banking sector is positive and Qatar is fairing particularly well according to KPMG’s GCC listed bank results report, which analyses the published 2016 financial statements of 56 leading listed commercial banks across Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates.

The report, which covers over 90 percent of the region’s listed banking assets, indicates that banks in Qatar and the wider region performed well in financial year 2016, despite margin compression, increased impairment charges and increased funding costs. Whilst overall net profit has declined year-on-year for the first time in recent years, asset growth has remained robust at 6.5 percent on average across the region, with Qatar seeing the highest increase at 21 percent, largely driven by growth in corporate lending, cash and equivalents and placements with banks.


Commenting on the results, Omar Mahmood, Head of Financial Services for KPMG in the Middle East and South Asia and partner at KPMG in Qatar said: “In what has been a politically eventful year globally, most of the banking sector specific challenges identified in 2015, including tough competition and increased regulation, have remained the same over the past 12 months. The wide-spread drop in profits reflects these challenges however it is clear that banks in Qatar and beyond are looking mitigate this by driving efficiencies and focussing on innovation.”


Qatar’s banks have retained the lowest cost-to-income ratios on average, when compared to other GCC countries reflecting the focus on cutting costs and improving operating efficiency over the past few years, however Qatar has also seen the highest increase in this ratio, at 2.3 percent, possibly a sign that other countries are working hard to catch up.


Mahmood continued: “reduced profitability for banks in Qatar is not surprising given current market conditions, although Qatar’s decline of 0.7 percent is below the average regional decline of 3.2 percent. However, in certain areas, the country’s banks have not done quite so well as their regional counterparts. Qatar has seen the highest increases in both impairment charges on loans and advances, and in non-performing loan ratios, indicating a deterioration in credit quality as a result of economic conditions. Despite both these measures increasing faster than other GCC countries, both are still lower than most other countries in the region, reflecting overall strength in Qatar’s banking sector.”


The report also shows how Qatar has experienced the highest increase in regulatory capital across the region from 2015, which can largely be attributed to banks taking a proactive approach to managing their currently low capital adequacy levels (at 16.6 percent as compared to the rest of the GCC where all other countries are above 18 percent). This is evidence that that the issue has been recognised and is being addressed, particularly as Basel III driven minimum capital adequacy requirements gradually increase over the coming years, given the Qatar Central Bank’s phased implementation, in addition to the balance sheet growth expected as we near the 2022 FIFA World Cup.


It is also clear that banks are continuing to look to the future to secure growth by identifying ways to innovate and secure customer loyalty. Mahmood continued: “There is a gradual shift from banks looking to win the ‘battle of the balance sheet’, towards a focus on the ‘battle of the customer’ by identifying new ways to ensure loyalty by taking a customer experience focussed approach.” A number of participating countries identified that banks are exploring new technology including mobile payments, electronic fund transfers using blockchain technology, facial recognition and quick-read cards to entice and retain customers.


The report titled “GCC Listed Bank Results: Navigating Change” is accessible via the KPMG member firm web sites in the Gulf. The report summarizes the published results of the banks on selected key performance indicators for the year ended 31 December 2016 and compares these vis-à-vis prior year.
 

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